Outperforming Asia credit markets a draw for investors

[SINGAPORE] Credit markets in Asia have been resilient through the energy shocks and continue to outperform the US bond markets, attracting both local and foreign investors.

The three-year annualised JP Morgan Asia Credit Index (JACI) performance for the last three years up to the end of 2025 for Asia investment-grade bonds had a 5.3 per cent return compared with US investment-grade bonds of 4.6 per cent. Asia high-yield bonds gave an annualised return of over 10 per cent for the same three-year period compared with 8.9 per cent for US high-yield bonds.

Asia credit markets remained resilient despite the energy shocks from the Middle East conflict, helped by higher credit quality, government uplift and shorter durations, said JPMorgan Chase (JPM) in a report on Asia credit.

Tenures of Asia credit are shorter than similarly rated US credit, with some Asia investment-grade bonds having a two-year duration for instance.

Drawdowns have remained broadly in line with historical performance, said BlackRock’s head of fixed income, Asia-Pacific, Navin Saigal. Spreads among bonds, particularly that of Asia investment grade, have also remained relatively contained, supported by fundamentals, he added.

About two-thirds of Asia investment-grade credit are issued by government-related entities, and should enjoy government support to ease pressure on credit fundamentals, noted JPM in the report.

But there are still some risks for countries with budget deficits and high current accounts that could face rating pressure in the event of a prolonged conflict in the Middle East.

Asia-Pacific is increasingly seen as an attractive investment destination, with 36 per cent of global asset managers increasing their Asia-Pacific investment-grade credit allocations in 2026. This is up from 28 per cent in 2025, according to a survey by investment manager Capital Group.

“I think the Asia story is strong in relative terms as there’s favourable central bank decisions to be expected, there’s strong capital inflow, and there’s a bit more of a stable currency picture versus other regions,” said a portfolio manager at a pension fund in Singapore in Capital Group’s survey.

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There is also increasing interest in emerging market debt (EMD), which Asia is a part of, with 30 per cent of investors looking to increase their allocations to the segment in 2026, from 16 per cent in 2025, according to the Capital Group survey.

Over three-quarters of investors expect EMD yields to remain or increase over the next 12 months, making it more attractive compared to developed market debt.

While demand might be strong for Asia credit from both local and international investors, the supply of Asia credit might be insufficient, noted Lim Soo Chong, JPM’s head of credit research.

For instance, Chinese bank deposits had reached about US$200 billion last year, but the total issuance of Asia credit was only US$180 billion in the same time frame, he added.

“Demand for Asian credit is strong. But given limited new supply, Asia investors have to deploy their excess capital outside the region,” noted Lim.

The role of Asia fixed income is also transitioning from a diversification play to a differentiated source of return, said BlackRock’s Saigal. The markets in the region have been shaped by distinct economic cycles, policy and reform trajectories, offering investors a variety of opportunities.

“Lower correlations, differentiated policy cycles and resilient fundamentals position Asian fixed income as a meaningful source of diversification and income within global portfolios,” added Saigal.